By Dr. Fred Ogolla
Kenya’s retail giant Uchumi supermarket has been in the reds now for over two years. KQ has had enough turbulent times recording huge losses. Mumias sugar company has also taken too long in the reds. In these cases, new CEOs have been put in place with a clear mandate; turn the companies around. This has raised the question; will these turnarounds actually happen? How long should a CEO be given to turn around a company or at least figure out the strategic direction of the turnaround? First, lets try to understand corporate Kenya’s performance.
2016 wasn’t a good year for Corporate Kenya. Starting with the banking sector, Total Assets have grown from Shs2 trillion to Shs3.6 trillion in 5 years. But 2015 proved to be a challenging year. Three banks collapsed and growth in total assets slowed down from a peak of 18 .4% in 2014 to 13 .7% in 2015 driven by an increase in bad loan provisions and a slowingsector. In 2016, Barclays Bank announced their exit from their African business. Three banks were placed under receivership, Chase bank, Imperial bank and Dubai bank. Other small banks faced significant squeeze as deposits “flew” to safety.
As the year 2016 was ending, there were very few corporate end year parties and the ones that held them had less pomp and color than previous years. In fact many companies especially in the media industry and manufacturing announced lay offs. Moreover, the perfect Christmas gift for some of us was that we remained in a payroll till the next year. 2017 has also started with its own worries as Cadbury Kenya plans to shut down its manufacturing plant in Nairobi as part of a global transformation strategy to reinvent its value chain. This is the second firm this year to cease local manufacturing after Eveready announced the closure of its dry-cell making plant in Nakuru. While some firms are counting their losses and shutting down to revamp their strategies through proper value chain management, other companies are just hemorrhaging and no action is been taken especially by their boards. What then is the role of the board in corporate strategy?
Before Barclays bank decided to exit their Africa business, their boards must have deliberated, made decisions and gave some timelines to their CEOs within which if the business was not convincing, they would pull the trigger. The same can be said of Eveready and Cadbury Kenya. How about Uchumi, KQ, Rift Valley Railways, Mumias Sugar, Webuye Paper Mills? Does anyone know when they will probably be turned around and be at least sustainable or more and more bailouts are yet to be declared? Does anybody care? In that regard, how much time do you think the board needs to give a CEO to demonstrate what he or she can do before he is replaced or the business is either sold or restructured? According to renowned strategists Professor Emeritus Robert Stobaugh; there are two extreme cases to be considered here.
One is, the company is in serious distress and instant action has to be taken or the company becomes technically insolvent. In this case, the CEO has got to come up with a plan almost immediately. Its like when a patient in a coma is rushed to hospital, the doctor has to decide in the shortest time possible if he can handle the case and what exactly he can do to save the patient. If he can’t, then the patient is taken to another doctor. In that regard, in not more than one month, the CEO ought to have already began plans to turn the company around. The firm is bleeding to death and hence there is no time to do a long-range plan. When you speak with Uchumi, KQ, KWS, Mumias sugar, Webuye Paper Mills and other bleeding firms in the country, the impression is either they are in search of “the plan” or it’s a long-range plan, which insinuates they have the luxury of time while the patient is bleeding. KQ on June 24, 2014 appointed Mbuvi Ngunze as CEO and waited till the pilots went on strike to finally let him resign on Nov 25, 2016. How many months are those! Uchumi appointed a new CEO on August 25, 2015 and we are still waiting to see what will happen. Check with Mumias Sugar Company, KWS among other non-performing corporates and you will sympathize with the tax payers and shareholders. What is the board supposed to do here; your guess is as good as mine.
On the other hand, if the company isn’t in any financial distress, then you could give the CEO a year to come up with recommended changes in strategy to make it better. This is the time when the company’s current vision, mission, strategic direction and objectives still matter. In a duration of six months the CEO and the board ought to work together to develop a strategy leveraging on the board’s knowledge and experience and the CEO’s short knowledge of the company. If that is achieved, within one year it would be very clear where the new CEO is taking the company. This is close to what happened when Michael Joseph handed over Safaricom to Bob Collymore. Bob eventually came up with Safaricom 2.0 Strategy and he had time. When Martin Oduor Otieno handed over KCB to Joshua Oigara, KCB had developed their regional expansion strategy. When Joshua stepped in, he only requested the board that he would speed up the execution through technology adoption and he moved the bank from 2 Million customer base to over 12 Million clients riding heavily on IT. However, companies in dire need of a turnaround have had their CEO taking more than one year in their jobs and still haven’t figured a clear strategic direction for their firms. Uchumi’s CEO will be 2 years into the job by August 25 this year.
The strategic implications here is that CEOs depending on the needs of the firm have to have timelines within which they either prove themselves or they are shown the door whether in public sector or private. Of course I know one will say that it depends on the industry in which one is operating but bleeding is bleeding. It doesn’t matter what industry you are in its just a matter of who is the shareholder. In that regard, boards must take their strategic leadership seriously in Kenya in 2017 in order to change corporate stories.
Boards need to be deliberative in those meetings and not just read reports, criticize or rubberstamp as management continue to lead or mislead them. If you have any board responsibility have board members review all the board’s agenda items for the past several meetings.
For each agenda item, mark which category it fits: S (Staff)- is this activity a duplication or review of a task staff already does or has done? Is it a rubber stamp of a staff recommendation / a staff initiated item? P (Past)-is this a review / discussion of something that already happened?(This will include staff reports, committee reports, financial reports, etc., most of which review past actions.) V (Values)- Does the item pertains to the organization’s core values? Is it a discussion of how decisions are made, how actions are determined to be right or wrong and how the board ensures that the organization is walking its talk. M (Vision & Mission) is this a discussion on the effect the organisation has in the community and its impact? Is it an item about how you will make a difference in people’s lives? This will enable the board know exactly their strategic value. This will reverse the fact that strategic leadership according to CEOs survey rank high in terms of importance but low in terms of board effectiveness;a disease that is crippling corporate Kenya.
The good book affirms that there is time for everything: A time to plant and a time to uproot what is planted. So what determines which kind of CEO to hire — the time to plant a new one and the time to uproot the current one. It all depends on performance and organizational needs in present.
Dr. Fredrick Ogola is the MBA Academic Director and a full time lecturer at Strathmore Business School (SBS).